Next Generation Supply Management Defined

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Category Archives: Manufacturing

As per our damnation post, while the the subject of labelling sounds harmless enough, it can still pose a nightmare for your supply chain. Products that are not properly labelled can be held up or seized at the border, seized for violation of state or federal labelling regulations from your warehouses or shelves, or result in massive fines and trade embargoes until the problem is corrected.

And it’s not as easy to adhere to labelling requirements as one might think. For example, in food and beverage, many jurisdictions require not only that all products contain nutritional information but also indicate whether or not the products are derived from GMO (Genetically Modified Organisms). In the tobacco industry, despite continuous threats of lawsuits from the tobacco companies, countries are starting to impose plain packaging laws and third parties dictate what packaging can and can not contain. In electronics, some countries are considering imposing laws that force a company to indicate the expected lifespan of the product being produced and how long it will be supported (as this is very important to a consumer spending hundreds, or thousands, on a new electronic device with the belief that the manufacturer is going to support the hardware and software for at least a few years). And different countries require different units, warnings, languages, etc.

This is not necessarily a bad thing, because consumers deserve to know what they are buying, but if multiple jurisdictions require different labelling requirements, it can be difficult to produce a label that satisfies all of the jurisdictions that operate under the same language. And if the company needs to produce a multi-lingual label that satisfies multiple jurisdictions in multiple countries, it can be a nightmare.

As per our damnation post, there are steps a company can take, namely:

the implementation of a Global Trade Management (GTM) solution,

careful review of each proposed label for full compliance before it is seen to the packaging supplier, and

monitoring for changes in labelling requirements so that the company does not get caught off-guard

but if a company is really ahead of the game, it will also:

monitor for proposed changes in labelling requirements and make sure it is in compliance before they happen if approval is likely and

monitor for key issues and complaints by buyers and find ways to proactively address issues before lawmakers tackle them and take a leadership position, which will improve the brand.

And, of course, make your labels as easy to understand as possible. If the product is packaged in 1L, don’t put nutrition counts for 278 ml against suggested daily values that aren’t even indicated on the package. NO one can quickly do that math in their head!

Engineering designs the products that represent a product-based company’s life-blood, as they generate the cash necessary for operations. No company exists without revenue (NO Sale, NO Store), and revenue only comes from the sale of products or services. And those have to be designed by someone, and that someone is typically an engineer. And while Engineers are the top talent in the company, as well as the best educated talent, they can also be stubborn rigid perfectionists.

As per our damnation post, each engineer has a process, a design, a set of approved raw materials, and that is the process, the design, and the set of approved raw materials. Trying to convince them that there is another process, alternate design, or other raw material that could be useable is like trying to force molasses to flow up a glacier, as this would mean that they would have to accept that there are better processes, designs, and raw materials, and that they exist today (despite the engineer’s expensive research and experience).

And even if they are willing to accept there are better processes, design, and approved raw materials — they are perfectionists. The cost model might say that 98% reliability is good enough because, in practice, only 1% of units will break down before the warranty period expires and the cost of flat out replacement will have little impact on profit margin, but Engineering will say otherwise. They will insist on the supplier with 99% reliability even with a 30% cost increase because a good engineer makes the best product they can make, cost be damned.

So how do you deal with this damnation so Procurement can achieve some sustentation? Education.

The first thing you need to educate is that reliability is not the number one concern, safety is. If a laptop, music player, TV, etc. stops working, it doesn’t harm anyone. The buyer might be annoyed, but if you immediately rush out a brand new replacement, the buyer won’t be annoyed for long. As long as the product doesn’t short out and electrocute the user, there’s no issue with a little less reliability.

The second thing you need to educate them is that sustainability trumps supplier longevity. A company has to plan for the future, not rest on past laurels, especially if those past laurels are suppliers that have never been questioned. While every supplier was likely a great choice for one reason or another at the time the supplier was selected, the supplier might not be such a great choice today. All suppliers have to be reviewed at one point in time, and if there are more sustainable suppliers, they have to be investigated.

The third thing you need to do is educate them that you can help them identify suppliers that could have better processes, designs, or raw material formulations and save them a lot of time searching for new alternatives, as you will be scouring the market on their behalf and only bringing them suppliers that might truly have a better, or different, option. As the gate-keeper, you will save them a lot of time.

Engineers are your best allies – they are educated, rational, and want to do the right thing for the organization, like you. So show them how you can help, and be willing to listen (and learn) from them, and you will be able to overcome this organizational damnation.

You’re probably wondering why this isn’t a good thing. More people in less area means the organization can sell more goods in a smaller area and this means Logistics has less areas to ship to and Procurement fewer areas to buy for. This is true, but it doesn’t mean that Procurement’s or Logistic’s task is any easier. In fact, while rapid urbanization can often make Sales’ and Marketing’s job easier, it can make Logistics’s and Procurement’s job harder. Much harder.

Typically when a city starts to rapidly urbanize, it’s infrastructure is not ready for the rapid urbanization. It’s water plants are stressed (and may not be able to accommodate the introduction of factories that require large amounts of water). It’s energy grids are stressed (and it’s not unreasonable that rolling brown-outs or blackouts could be temporarily required at peak periods). It’s public transportation is stressed (and even getting a taxi can be a 45 minute ordeal). It’s roads are stressed (and there can be regular delays to pick up and drop off goods at cross-docks and warehouses). Plus, it’s core roads may only be 2 or 4 lanes in many places, with large trucks prohibited – meaning that Logistics will have to secure, and use, a number of smaller trucks for pickups and deliveries — which means a need for more drivers in an industry where the driver shortage is in the tens of thousands in some countries. And then there’s waste management. The sewer system could be taxed (with the end result that the rivers are used to handle the excess until they run full of waste like the Mithi river). The capacity to collect garbage might not be there (which leads to stringent limitations on how much trash a home or business can throw out unless they haul it out of town to dump by themselves). And process and recycling stations could be overloaded (leading to a stench, unhealthy buildup of noxious fumes in the air).

Then comes a rapid increase in pollution, which can see a rapid increase in hazardous airborne (smog-inducing) particles to the point where it is almost triple the national air quality average (as is the base in Beijing). This will, of course, eventually result in legislation to limit the amount of pollution an organization can produce, which will, if the organization hasn’t planned for it, result in costly production plant and fleet retrofits that could easily cost millions of dollars. However, this probably won’t equal the increase in taxes that will come if the city, state, or country tries to clean up its problem and decides to spend billions of dollars doing so (as China is about to in preparation for its bid to host the 2022 winter olympics, an effort that will cost about $7.7B using the exchange rate of August 16, 2015).

But the trials and tribulations don’t stop there. Rapid urbanization is also typically associated with a rapid increase in crime (though often temporary from a long-term perspective, this temporary increase can still last decades), pandemics (as nothing spreads airborne and waterborne bacteria and virii faster than density), taxation to pay for the necessary improvements to infrastructure and social programs, a quickly changing political and regulatory environment, and a greater potential for mass hysteria and riots. Rapid urbanization can bring with it dozens of damnations, each of which will directly and indirectly affect Procurement on a daily basis.

Sales and Marketing may do the dance of joy, but they really ought to be shot in the foot for doing so as the good can often be outweighed by the bad in the short term, and the amount of rapid adaption that Procurement might be forced to deal with may not be worth it.

A critical requirement of a multi-round RFX or multi-round negotiation is the ability to support multiple prices at different volume levels and price history. One of the biggest ERP systems on the market today still does not support this simple, basic, requirement. It’s crazy, but it’s true. And without the ability to store proper prices, volume breaks could be missed and millions could be lost.

Procurement

A critical part of Procurement is m-way matching between the invoice, purchase order, and goods receipt. And a critical part of procurement performance management is tracking each mismatch. How often does a supplier over-bill? How often does a supplier under-ship? This can only be tracked if there is a complete invoice history, but many so-called “modern” ERPs only allow for one version of an invoice. So when it is corrected, the history is lost. And a supplier’s true performance is never known. Performance that could cost you dearly if an under shipment results in a stock out that costs millions in revenue.

Logistics

A critical part of logistics is tracking not only order dates and received dates, but required ship-by dates, receive-by dates, and outbound ship-by dates to avoid missing customer requirements. Some ERPs can only track the date the PO was cut and the date the goods were received — that’s not enough. Another critical part of logistics is ensuring that each carrier has enough insurance to cover the replacement cost of the load, which requires tracking the cost of the load and the insurance coverage of the carrier. With respect to this, the best the average ERP system can do is allow you to look up the PO total and, if you are lucky, extract the last copy of an insurance certificate stored as a PDF in a blob or similar structure in the document store. No meta-data to tell you what’s in the certificate or if it’s even still valid — which could expose you to a huge liability.

Forecasting

Most ERP systems are still using 20 year old forecasting models, and look at what these models did for Cisco and Nike! Should you still be using them?

Compliance

Most of these systems were built before the introduction of acts like 10+2, REACH, SOX, and WEEE — acts which require you to track, report, and store certain data to maintain compliance with these acts. Compliance which is critical to avoid fines, penalties, seizures, [temporary] business closures, and even criminal charges. Compliance which is not maintained by ERP systems that aren’t set up to store all of the data required on an import/export form, track detailed BoM (Bill of Material) data to ensure acts like REACH and WEEE are not violated, and the detailed audit trails required to satisfy SOX.

Risk Analysis

While there are a plethora of risks that can not be predicted due to their nature (like natural disasters, geopolitical uprisings, etc.), there are a plethora of risks that can be predicted with high likelihood if they are monitored for. However, this monitoring depends on the availability of good data. For example, supplier failure can often be predicted if the organization monitors shipments, third party risk data, and market data. If shipments get progressively later, contain higher defect rates, and third party financial ratings for a supplier get weaker every month, that’s a sign of supplier distress and a potential bankruptcy, and it’s critical that the buyer assess the supplier’s health and monitor the situation. This will only be detected if the system tracks delivery dates and defect rates, third party data, and appropriate econometric models. However, all most ERPs track is good receipt dates and returns (but no meta data tying them to orders to calculate defect rates). No market data, no financial ratings, no modern econometric models. No way to detect imminent disaster.

And this is just a short list of ERP failings that could bring imminent disaster. To find out more about ERP’s shortcomings, if you still have not done so, (register for and) download the recent white-paper by b2bconnex on Why ERP is NOT Enough. The sooner you learn this, the sooner you can correct the situation and join the leaders with a modern supply chain.

Back in 2006, Supply Chain Digest put out a paper summarizing the 11 greatest supply chain disasters, which it revised in 2009. (Download from SCD.) They are summarized in the following table:

Company

Impact

Cause

Foxmeyer

Bankruptcy

ERP and Automation Failure

GM

Billions Lost

Robotics

WebVan

Bankruptcy

ERP and Automation Failure

Adidas

Forecasts 80% off; market losses persist for years

ERP and Automation Failure

Denver Airport

Late opening; PR fiasco

Automation Failure

Toys R Us

1000s of orders unfulfilled; huge PR fiasco

Serious Understaffing

Hershey Foods

150M+ revenue loss; 19% profit loss; stock plummet

ERP and Warehouse failure

Cisco

2.2B inventory write-down; 50% stock plummet

ERP and Inventory Forecasting

Nike

100M Profit shortfall; 20% stock drop

ERP and Inventory Forecasting

Aris Isotoner

Fire Sale

Outsourcing Snafu

Apple

PR Black Eye and Major Market Share Loss

Conservative Inventory Strategy

See a commonality? Six (6) of the Eleven (11) failures are directly or indirectly caused by an ERP fiasco. Three (3) are due to poor inventory planning and/or management and ERP (integration) failures, and three (3) are due to warehouse automation failures (and include an ERP integration failure or management component). Technology has been the leading cause of major supply chain disasters, and the technology has always been either the ERP, or dependent on the ERP.

If this does not convince you that ERP is NOT Enough and an over-reliance on your ERP system is just a supply chain disaster waiting to happen, I don’t think anything will and will advise that if you are religious and pray, start praying for a smooth supply chain today. (Not that the doctor thinks praying will help, but nothing will as long as your organization over relies on the ERP.)

For a detailed discussion of Why ERP is not Enough, I suggest, if you have not already done so, downloading the linked white-paper by b2bconnex today (registration required).

As the doctor pointed out in his last post, not only does the paper address some critical ERP shortcomings in detail that you need to understand, but it also helps you understand why you need, depending on your business, ether a modern sourcing platform, a modern procurement platform, or, particularly in manufacturing, a modern supply chain communication and collaboration platform that handles all critical communications. And it does so without any reference to any particular platform and contains no marketing spiel, a rarity for a vendor white paper today.

So go ahead and download Why ERP is NOT Enough today and begin your journey to the adoption of a modern supply management platform so that your organization does not end up on the top 11 supply chain disasters list due to an inevitable ERP failure. (Like a natural disaster, it’s not a matter of asking “if” it will happen, it’s a matter of being prepared for “when” it will happen.)